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Summary of Estimated Returns

The Iowa State University Extension Marketing Office calculates estimated returns to five livestock enterprises each month. While the estimates constitute “pencil” production because they do not factor in production uncertainty due to weather or poor health, they do account for actual prices for inputs and output. They also provide a long running benchmark to monitor the economic environment in which livestock producers operate. Beginning January 2007, production assumptions used in calculating estimated returns were evaluated and revised to more accurately reflect the enterprises.  For more information on the revisions please visit Revised Estimated Returns.  This article summarizes the previous ten years, 1998-2007, looking at the level and variability of returns.  For this summary, 1998-2000 return estimates were based on the old assumptions while the 2001-2007 estimates are based on the new or current assumptions.   

Farrow to Finish:  Farrow to finish producers have had a profitable 10 years with average return of $5.09/head. The range in returns varied by more than $92/head. Only 60% of the months were profitable for selling hogs. The most profitable monthly returns were realized on hogs sold during the period of May through August, the time of seasonally higher prices. November had the lowest average return, but was profitable in three of the past ten years. Thirty percent of the months had returns between -$10 and +$10/head.

Feeder Pig Production:  The ten year average return to feeder pig producers was $3.72/head. Returns varied by $65/head from a loss of -$31.60 to a profit of+$33.32. May and June sales produced the highest average returns. Average returns were only negative for 35% of the remaining months. In 65 percent of the months the enterprise of producing and selling feeder pigs was profitable, but specifically April, May and June were profitable 80 percent of the time. Approximately 34 percent of the months produced returns between+/- $5/head.

Feeder Pig Finishing:  Returns for finishers over the past 10 years averaged negative $2.21/head. Their returns varied by $80/head from high to low and were profitable only 41 percent of the time. Hogs sold in May were the most profitable and hogs sold in the fall months were least profitable.  October and December sales were profitable only three times each over the past 10 years. November sales were profitable in only two of the ten years.  Only 27 percent of feeder pig finishers’ returns fell between +$5 and -$5/head reflecting the volatile nature of the enterprise.

Finishing Steer Calves:  Average returns to calf finishers’ were negative $7.20/head over the ten years 1999-2008, in large part do to large losses in 2008. Returns varied by $567/head from low to high, and were positive in 45 percent of the months. Returns were the highest in March, April and May and the lowest in August and September. Cattle sold in May were profitable in seven of the ten years, and sales in November were profitable in only two of the ten years. Approximately 24 percent of the months produced returns between -$30 and +$30/head showing the volatility of cattle feeding.

Finishing Yearling Steers:  Average profits to feeding yearling steers were -$6.85/head for the ten year period. Cattle sold in 48% of the months showed profits. Monthly returns ranged from -$249 to $378, or $627/head. Highest returns were earned from sales from March and May. The lowest average monthly return occurred in January, February and December. October sales produced positive returns in two of the ten years. Only 23 percent of the returns fell in a range from +/- $30/head showing the volatility of cattle feeding.

The annual returns assume that producers market an equal number of animals every month. While this production flow may be realistic for many hog producers, many cattle feeders sell only one or two groups per year. Likewise, with the health advantages of all-in all-out feeder pig finishing, finishers may also want to consider timing sales for more profitable marketing. The difference in average monthly returns suggests that there may be more profitable months to buy, feed, and sell cattle or hogs. It may also help determine which month’s feeder pig producers choose to retain ownership of the pigs to slaughter rather than selling as pigs.

The Estimated Returns procedure ignores production differences associated with feeding at different times of the year (weather, mud, etc.). It does account for purchase and sale prices and feedstuff purchase prices weighted by when the feed was fed. A producer can then ask whether performance differences due to time of year offset the buy-sell advantages. While other enterprises or feeding periods will provide different results, a comparison of the extreme monthly averages for feeding yearling steers can serve as an example. During the years 1999-2008 yearling cattle sold in March have averaged $27/head higher return than ones sold in July. How much would production efficiency have to decline to make April sales less profitable than July sales? In a $100/cwt feeder cattle market, death loss would have to be 2.7 percentage points higher (i.e., 3.7% rather than 1%), or the steer would have to eat nearly 7 bushels more $4/bu corn, or, assuming 30˘/head/day yardage, the steer would have to be on feed an additional 90 days. Thus, it is unlikely that July returns will exceed those from March sales due to the difference in performance and efficiency, but still possible.  It is important to evaluate the current market environment when incorporating the lessons learned from past trends in returns.

 

Page last updated: May 12, 2009